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This Tiger Has A Thorn In Its Paw

July 23, 1995

International Business: HONG KONG

THIS TIGER HAS A THORN IN ITS PAW

Hong Kong executives on the go can't do without beepers to get important messages. The booming demand for such services has created lots of jobs--more than 30,000 people now work as paging company operators. But last month, the companies received permission to service local calls through lines to southern China, where wages are only $260 per month, vs. $1,100 in Hong Kong. "Nearly the whole industry will move to China," warns Wong Chi-mei, spokeswoman for the operators union. "And following pagers, others will move, too."

Job worries are hitting Hong Kong. High rents and labor costs are making the city less competitive, leading more employers to move low-end white-collar jobs across the border. Having managed the transition from a manufacturing economy to a service one just 10 years ago, the Asian tiger now faces another major restructuring as its economy becomes more mature.

DODGED BULLET. The earlier transition didn't cause much pain. While some 500,000 factory jobs disappeared, industries such as finance, tourism, and trade more than made up for them. Today, Hong Kong has some 1.5 million workers in the service industry, compared with just 400,000 in manufacturing.

But job growth in those industries has fallen off. In May, the unemployment rate hit an eight-year high of some 3%. Although low by Western standards, it caused alarm in Hong Kong, where full employment has long been the norm. Especially worrisome was a first-quarter decline in employment in finance, which fell 2.2%, and trade and retail, down 0.7%. "Hong Kong is starting to have core unemployment," says Daryl Ho, an economist at Jardine Fleming Holdings Ltd.

The worry among many in Hong Kong is that the same forces that drove away factory jobs are starting to eat away at service jobs, too. "There's an increasing availability of people elsewhere to do these jobs," says Ian Perkin, economist at the Hong Kong Chamber of Commerce. Accounting, personnel, and data processing are particularly vulnerable. Hongkong & Shanghai Banking Corp. and Cathay Pacific Airways have moved some back-office work to China.

The tightening has led the Hong Kong government to move away from its traditional laissez-faire approach to the economy. While the government has had an employee retraining program since 1992, it's now stepping up efforts to assist the growing number of service-sector workers in search of jobs.

Labor activists want more. "The government should block the paging companies from moving," says Wong. Labor groups want the government to suspend a plan that lets foreigners work on construction projects such as the new Chep Lap Kok airport. They also want Western-style unemployment insurance to replace the current system, which doesn't offer assistance to laid-off employees if others in their family work. Only 5% of Hong Kong's unemployed qualify.

IMPORTS. Such moves are opposed by the business community. "Hong Kong has been a successful place because people rely on themselves and not social welfare," says May Chow, executive director of the Employers Federation of Hong Kong, which also opposes efforts to restrict the entry of legal foreign workers. At the new airport site, workers are putting the finishing touches on dormitories with 6,800 beds--mostly for workers brought in from China and Southeast Asia.

Despite its problems, the employment picture in Hong Kong is hardly dire. While some 80,000 have no jobs, there are also 60,000 vacancies, mostly in higher-end jobs that require more skills. Even so, the long-term structural changes aren't going away. Political rhetoric is likely to get more heated in the fall, with the approach of legislative elections. "Unemployment will be the issue," pledges Lee Cheuk Yan, chief executive of the Hong Kong Confederation of Trade Unions and a member of the Legislative Council. Hong Kong residents won't need beepers to get that message.By Bruce Einhorn in Hong Kong